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Wednesday, May 29, 2013

2010 Answers To The 20 Questions Every Startup Should Answer

The results are in for the 2010 startup company survey recently sponsored by Kevin’ Corner. The survey included 20 questions designed to uncover how startups are approaching their businesses, funding and operations. The response to the survey was great with more people participating then I had originally expected. The results are intriguing and in some cases unexpected. The participants were selected from the Kevin’s Corner contact list. Over the past two years the Kevin’s Corner blog has attracted thousands of visitors from 75 countries. Many of these visitors are entrepreneurs, business owners and investors.

The objective of the survey was to provoke thought amongst the startup community about how best to approach a startup and to solicit real opinions on how startup participants manage the startup process. The long term goal of the survey process is to see how startup trends are changing based on market and economic conditions.

The following are the results of the survey. I have added my own interpretation of each question to provide a context and hints as to the purpose of the question.

I would like to thank everyone that participated and took the time out of their busy schedule to answer the questions. I was extremely impressed by the honesty exhibited by individuals that provided comments and reasons behind their selections.

1.) Should you craft an exit strategy in the early stages of a company.

71.4 % Yes

14.3 % No

14.3 % Other

I was not surprised by the heavy skew towards the support of an exit strategy early in a startup’s life-cycle. Many startups have a preconception of how and when they exit. They also have notions of how much they are going to profit from an exit. The problem with this is that savvy investors that I have spoken to can be turned off by this focus. What they really want to hear is how the founders are focused on creating a solid successful company. In reality making a company a success is hard work that could take a long time. If an entrepreneur goes into a venture with unrealistic expectations those expectations could have a impact on the startups ability to execute. With that said startups are build on dreams and many dreams are fueled by the big payout.

2.) Are conflicts and disagreements amongst co-founders good or bad for a startup.

50% Good

21.4% Bad

28.6% Other

I asked this question because conflicts inevitably occur in a startup and founders need to be prepared for them. Some discord is a good think because it stimulates creative thinking and challenges the team. To much of it and it will start to have a negative impact on the team. The comments from the survey support this position.

3.) All Internet related startups can be started and launched with little or no investment capital.

21.4% Yes

78.6% No

Most of the participants answered this question with a resounding no. I was surprised to see this because many people believe that you can bootstrap your way to Internet nirvana. The survey participants are obviously seasoned entrepreneurs and realize that this is more myth then reality.

4.) Startups should have a time line for milestone achievement.

85.7% Yes

0% No

14.3 Other

The majority of survey responders agree that setting milestones and seeking to meet or exceed them is a good idea. This is good advice for people just starting out with a new company. Unfortunately, many entrepreneurs do not break down their startups into measurable achievable goals so they never really know where they stand.

5.) Establishing business metrics in the early stages of a company is an effective management tool to measure progress against goals.

78.6% Yes

21.4% No

This is a follow up to question 4. Setting goals is great but being able to measure progress is better.

6.) A startup should always be engaged in fund raising even if the startup has proper funding.

71.4% Yes

07.1% No

21.4% Other

In general most entrepreneurs understand that continually being in the hunt for investment capital is necessary part of an entrepreneur’s life. The comments did bring out that not everyone is good at this and it does eat up a lot of time and effort. These last points are well taken and does imply that someone in the startup needs to be a good fund raiser. In many cases this is all that member will be doing allowing the other members to get the real work done.

7.) Equity only compensation is an effective way to attract staff to a startup company.

26.6% Yes

50% No

21.4% Other

I was surprised by the results for this question. The answer does indicate that founders are now realizing that real cash is required to get a company up and going. One interesting comment was that equity is actually a very expensive way to compensate participants. I found this to be a very good comment because there is so a finite amount of equity in a company. Also the legal fees to continually allocate equity for compensation can add up to a significant portion of a startup budget.

8.) Are venture capitalists a good source of advice in the early stages of company formation even if you are not seeking their investment.

57% Yes

14.3% No

28.6% Other

The majority agrees that there is value to a VC’s advice and comments even if theire is no investment capital coming from the VC. The comments themselves reveal that the individual VC’s you talk to make a big difference in whether there is or is not value to the advice.

9.)What should your reaction be to an investor when they decide not to invest in your startup.

0.0% My idea and company are not worthy of investment

14.3% The investor does not know anything about my business

07.1% The company should change its strategy

28.6% The investor is not knowledgeable about my business sector

00.0% We are asking for too much money

64.3% Other

Clearly the answers to this question were not adequate to answer the question properly. The majority of the respondents answered this question with comments. The responders do not come away from an investors lack of interest with one take away. There are many things that can be derived from an investors lack of interest. One theme consistent amongst the respondents was that this reaction is not cause for panic. Investors are not all knowing and do have their own prejudices.

10.) What should you do if your working capital runs out.

0.0% Close the company

0.0% Mothball the company

14.3% Scale the company down

21.4% Change the product or service

57.1% Seek new investment sources

14.3% Put all of your own money into the company

28.6% Other

The majority of the responders indicated you should carry on and seek new capital sources. The comments themselves were heavily skewed in this direction.

11.)All startups should prepare a business plan even if they are self funded.

85% Yes

7.1% No

7.1 % Other

It was great to see that most startups do create some form of a business plan to sort out revenue, expenses and staffing.

12.) A commitment to a startup lifestyle will have no impact on an entrepreneur’s family or close friends.

07.1% Yes

92.9% No

I have to admit that this was a leading question on my part. You never fully realize the impact of a startup on your family or friends until you are involved in the venture. A commitment to a startup has a significant impact on your personal life that can not fully be understood unless you have started your own company.

13.) If the majority of the people you survey think your business idea is a good one you should start a company based on that idea.

21.4% Yes

07.1% No

28.6% Ask them why they think it is a good idea

64.3% Ask them if they would invest in the idea

35.7% Other

The really important question is would a person invest in the idea.

14.) Startups should assume that outside(non-founder or friends) investors will invest in their company.

42.9% Yes

42.9% No

14.3% Other

I do not know what to take away from this dead heat. It certainly indicates that the entrepreneurial community is split on the role and commitment of outside investors.

15.) Institutional(Venture Capital/Bank Loan) investment is required for a company to reach its full potential?

21.4% Yes

50%% No

28.6% Other

The preferred answer to this question appears to be somewhat inconsistent with the answers to questions 3 and 7. Apparently, the crowd believes you need external working capital to run a startup. However, it they are not keen on institutional funding.

16.) Founders should invest all of their savings into their startups before seeking external funding.

0.0% Yes

78.6% No

21.4% Other

Clearly the participants do not suggest investing all of a founders cash into a business. This answer plus the answers to several other questions indicates that the preferred form of startup funding is angel or individual investor funding.

Everyone agreed that in a perfect world you need a diversity of skill sets in a startup to make it work. This dispels the myth that a couple of geeks in garage can start and launch a successful company.

18.) Startup founders should have a preset time line for when a business will be successful.

50.0% Yes

21.4% No

28.6% Other

The participants generally agreed that a time-line of some kind should be established as a benchmark and guideline. Some of the comments indicates that things naturally happen that upset the plan. However this does not mean you should not have a time line.

19.) Startup entrepreneurs should get approval form their family members before starting a company.

14.3% Yes

42.9% No

7.1% All close family

14.3% Direct family members

14.3% Husband or Wife

28.6% Other

This one was very interesting based on the fact that the answer to question 12 indicated that the majority agreed that a startup lifestyle has a big impact on family and friends. Despite this close to half of the responders indicated they would go for it without family approval.

20.) Should a company’s original business plan or idea be modified before the company receives market feedback.

35.7% Yes

35.7% No

00.0% If A Company Can Not Receive Investment Capital

14.3% If Too Hard To Bring To Develop And Bring To Market

21.4% Other

Most the comments in the Other category support the notion of changing direction based in different sources of information. This pushes the general consensus into the yes category.

In conclusion, this survey pointed out some very interesting startup characteristics, attitudes, operational approaches and funding preferences. All good portion of the entrepreneurial community that responded to this survey where seasoned entrepreneurs that appear to have at least one start-up under their belt.

It also indicates that entrepreneurs are beginning to change their notions about how much investment, the form of investment and the time-line for success are changing. It will be interesting to see if next years survey will differ from the current results.

Once again I do appreciate the contribution of the participants and the valuable information they have provided.. Having real life feedback to tough startup questions will help newly minted entrepreneurs, people considering a startup and existing professionals.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes extensively about startup companies. Kevin is a long time entrepreneur having started, sold, IPOed and operated a number of startups in the US and Europe. Kevin currently advices startup companies on technical, funding and business operations. Kevin is a frequent speaker at conferences in Asia, Europe and the US.